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Healthy and Working Benefits of Work Requirements for Medicaid Recipients

December 3, 2018

By Rea S. Hederman Jr.; Andrew J. Kidd, Ph.D.;

Tyler Shankel; and James Woodward, Ph.D.

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Table of Contents

Executive Summary 3

Introduction 5

Medicaid: 1965-Today

Medicaid After the ACA

Medicaid and Work 8

Medicaid Expansion’s Negative Impact on

Employment

Medicaid: Diminishing Work Experience and

Earnings

Analyzing the Benefits of Work Requirements:

Methods and Results

12

Data for Analyzing Work Behaviors and

Earnings

Approach to Evaluating the Effect of Work

Requirements

Findings: The Effect of Work Requirements

Conclusion 21

About the Authors 23

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Executive Summary

Created in 1965, Medicaid was originally designed to serve the neediest among us: the blind or

disabled adults as well as children of parents with very low incomes. Congress enacted the Patient

Protection and Affordable Care Act (ACA) in 2010 and changed the health care system in the

United States by writing new rules for the private health insurance market and expanding the

eligible population for Medicaid.

The Medicaid expansion that occurred subsequently in some states has not only increased

Medicaid’s enrollment, but has also had the unintended and lesser-known consequence of causing

healthy, single adults to leave the labor force or reduce their hours of work in order to qualify for

Medicaid benefits. By exiting the work force prematurely, workers risk permanently reducing their

lifetime earnings and income.

Extending Medicaid benefits to individuals who are able to work may reduce their lifetime

earnings over the long-term and adversely affect their consumption patterns in the short-term.

Although households may benefit in the short-term from Medicaid coverage through little- or no-

cost health care, the ACA’s Medicaid expansion does not promote individual long-term earnings

growth or wealth accumulation. Workers have less incentive to invest in their human capital than

if they were required to work in order to receive benefits.

To address this concern, states that have participated in the ACA’s Medicaid expansion are now

considering—or have already begun to impose—work requirements for some new Medicaid

enrollees. Work and “community engagement” requirements, such as education and job training,

tend to keep benefits recipients participating in the work force, helping them to gain valuable work

experience and generate higher earnings and income over the long-term.

Using publicly available economic data, this report reveals the potential impact of imposing work

requirements on healthy, single individuals with no children. We study how eligibility work

requirements may affect the lifetime earnings of some Medicaid enrollees and find that Medicaid

work requirements could:

• Increase lifetime earnings by $212,694 for women and $323,539 for men—even assuming

that the individual remains on Medicaid for their entire working life; and

• Raise the hours worked per week by 22 hours for women (from 12 hours to 34 hours per

week), and by 25 hours for men (from 13 hours to 38 hours per week), bringing Medicaid

recipients well above the typical 20 hours per week requirement.

We also find that the financial prospects look even brighter for individuals who transition off of

Medicaid; they may earn close to $1 million more over the course of their working years.

Requiring labor force participation for benefits eligibility creates an incentive for individuals to

increase human capital investment through the labor market. We show that there is a significant

potential economic benefit for those able-bodied adults who would change their work effort in

response to a work requirement for Medicaid eligibility.

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Implementing work requirements will not be without its political and administrative difficulties.

But some foreseeable difficulties, such as the unplanned program dropouts and the increased costs

of authenticating new eligibility requirements, can be managed with some relatively simple steps.

State and federal Medicaid departments will need to plan ahead and train their case workers

adequately in order to ensure effective communication about and administration of the new policy.

Medicaid departments should also conduct an information campaign to educate current Medicaid

recipients regarding the changes to eligibility requirements, how they will be affected, and what

new steps may be required for maintaining eligibility.

Linking recipients to work programs, apprenticeships, training programs, and recruiting and

employment agencies will help ensure that eligible recipients fulfill the requirement and avoid

unnecessary lapses in Medicaid coverage. And policymakers could require all employers to report

employee hours to their state Medicaid agencies, lowering the compliance cost for individual

recipients at a minimal cost to employers.

These suggested remedies may help ensure that all eligible individuals maintain Medicaid

coverage, minimize program disenrollment due to inadvertent non-compliance, and expand

opportunities for Medicaid recipients to increase their earnings and live independent of Medicaid.

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Introduction

Created in 1965, Medicaid was designed to serve the neediest among us—initially, the blind or

disabled adults as well as children of parents with very low incomes. Congress enacted the ACA

in 2010 and changed the health care system in the United States by writing new rules for the private

health insurance market and expanding the eligible population for Medicaid. The Medicaid

expansion that occurred subsequently in some states has not only increased Medicaid’s enrollment,

but has also had the unintended and lesser-known consequence of causing healthy, single adults to

leave the labor force or reduce their hours of work in order to qualify for Medicaid benefits. By

exiting the work force prematurely, workers risk permanently reducing their lifetime earnings and

income.

States that have participated in the ACA’s Medicaid expansion are now considering—or have

already begun to impose—work requirements for some new Medicaid enrollees. Work and

“community engagement” requirements, such as education and job training, tend to keep benefits

recipients participating in the work force, helping them to gain valuable work experience and

generate higher earnings and income over the long-term. Using publicly available economic data,

we use an economic model to estimate how such work requirements will affect the lifetime

earnings of some Medicaid enrollees.

Medicaid: 1965-Today

Medicaid is a means-tested, joint federal-state program intended to provide health care insurance

coverage to low-income individuals and families. The program initially covered a relatively small

group of recipients, generally limited to blind or disabled adults, and children of parents with very

low incomes (usually well below the federal poverty level (FPL)).

Since its creation, however, the Medicaid-eligible population has steadily climbed to include

roughly one-fifth of the US population and half of all childbirths.1 The growing size of the

population now covered by Medicaid corresponds to expansions in the Medicaid eligible

population. For example, prior to 1997, children of families whose incomes were too high for

traditional Medicaid and were unable to afford private insurance coverage were ineligible for

Medicaid coverage, but, in 1997, the Children’s Health Insurance Program, commonly known as

CHIP, was created as a part of Medicaid and began offering health insurance to children of such

families. This led to a growth in enrollment of more than six million newly insured in less than

seven years and statistically significant increase in Medicaid and CHIP enrollment following

enactment.2

1 Robin Rudowitz and Rachel Garfield, 10 Things to Know about Medicaid: Setting the Facts Straight, The Kaiser

Family Foundation, April 12, 2018. 2 Sheila Hoag, Mary Harrington, Cara Orfield, Victoria Peebles, Kimberly Smith, Adam Swinburn, Matthew Hodges,

Kenneth Finnegold, Sean Orzol, Wilma Robinson, Children’s Health Insurance Program: An Evaluation (1997-

2010): Interim Report to Congress, Mathematica Policy Research, December 21, 2011; Embry M. Howell and

Genevieve M. Kenney, “The Impact of the Medicaid/CHIP Expansions on Children: A Synthesis of the

Evidence,” Medical Care Research and Review, Volume 69, Issue 4 (August 2012) p. 372-396.

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As part of a cooperative federal-state program, states have some flexibility in determining the

eligibility requirements for and range of benefits provided by Medicaid. For example, Medicaid

recipients typically become ineligible for the program when they earn a certain level of income,

but that precise level is determined by each state. And although offering Medicaid coverage is

mandatory under federal law for some groups, such as pregnant women with incomes below 133

percent of the FPL, states still maintain some discretion for providing benefits to other, non-

mandatory groups, e.g. single, non-elderly, and non-disabled adults; and for determining which

benefits, such as vision or dental coverage, will be provided.

Under the arrangement between federal and state governments for program administration, states

cover the initial amount of health care spending for Medicaid recipients and the federal government

reimburses them for a portion of that spending. The amount of federal reimbursement is based on

the federal medical assistance percentage (FMAP), a formula based on a state’s per capita income

compared to the national average. For traditional Medicaid, FMAP ranges from a minimum federal

reimbursement of 50 percent to more than 75 percent, with the lower FMAP rate for states with

higher per capita incomes, and a higher FMAP rate for those with lower per capita incomes. Richer

states receive a lower federal reimbursement rate, while poorer states have more of their Medicaid

costs subsidized by the federal government.

Given the rising costs of medical care and Medicaid’s expanding eligibility, it is not surprising that

Medicaid spending is substantial. In 2016, Medicaid spending accounted for 17 percent of total

health care spending in the country at $565.5 billion. Continuing its growth trend from 2015 to

2016, Medicaid spending is expected to surpass $1 trillion by 2031.3 Thus, it is imperative for state

3 National Health Expenditure Fact Sheet, Centers for Medicare and Medicaid Services (Last visited October 2,

2018).

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and federal policymakers to better understand why Medicaid spending is increasing and how to

ensure the program is sustainable.

Medicaid After the ACA

The ACA significantly changed the size and scope of the Medicaid program. After the Supreme

Court’s landmark decision in NFIB v. Sebelius held that Congress could not unilaterally and

fundamentally change Medicaid’s income eligibility requirements,4 the law now gives states the

option of expanding Medicaid’s income eligibility to include individuals earning 138 percent of

the FPL. 5 After NFIB, states that chose to expand Medicaid now have an effective income

eligibility of 138 percent of the FPL, while the non-expansion states can still limit eligibility to

below the FPL for some individuals.6

With the increased cost of covering more recipients under the ACA-expanded Medicaid, the

Medicaid expansion population was initially covered at a 100 percent FMAP rate. That meant that

the federal government reimbursed states for almost all of the costs of covering the additional

“expansion” recipients.7 The FMAP rate will gradually fall to 90 percent in 2020, however, which,

although less than the current 100 percent rate, is still a higher reimbursement rate than the

traditional Medicaid population.

The rising costs of Medicaid coverage continue to raise two important—and related—policy

questions: how does Medicaid eligibility affect individual behaviors; and what benefits accrue to

recipients from policies that create incentives to leave the Medicaid program?

This study explores how implementing a “work requirement” for Medicaid eligibility would

benefit current Medicaid recipients.

4 National Federation of Independent Business v. Sebelius (2012). 5 While the law established Medicaid eligibility at 133 percent of the federal poverty level, five percent of income is

disregarded making the effective eligibility rate 138 percent of poverty. 6 Medicaid Income Eligibility Limits for Adults as a Percent of the Federal Poverty Level, The Kaiser Family

Foundation (Last visited October 2, 2018). 7 Administrative costs did not receive the enhanced FMAP rate.

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Medicaid and Work

As a means-tested program, Medicaid eligibility is tied to income. Program benefits can be denied

or withheld when a recipient’s income surpasses a specified threshold. The potential for

elimination of benefits places a large implicit marginal tax on income over the designated

Medicaid threshold.8 Mainstream economic theory posits that any policy that creates an implicit

tax on work will reduce work effort.9 An income eligibility limit places an implicit “tax” on work

insofar as Medicaid benefits may be removed once a certain income level is attained. Thus,

Medicaid income-eligibility creates an incentive to reduce work in order to remain eligible for

Medicaid.

Medicaid Expansion’s Negative Impact on Employment

Economists at the Congressional Budget Office (CBO) analyzed the ACA in 2010 and predicted

that the ACA would reduce labor compensation by about 0.5 percent, primarily due to the

reduction in labor supply. The primary reason for the projected decline in the labor supply was the

ACA’s Medicaid expansion.10 The CBO believed that some people work only to obtain health

insurance and would reduce work effort if they could receive Medicaid benefits without having to

be employed.

In 2014, another CBO study showed that most effects from the ACA’s Medicaid expansion would

occur sometime after 2016.11 According to the CBO, the Medicaid expansion would affect both

market demand and supply for labor, with the supply side being more heavily affected—a

prediction affirmed by subsequent studies. They estimated that hours worked would decline on net

by approximately 1.5 to two percent—equal to two million full-time-equivalents (FTE), with an

additional 500,000 people leaving the workforce sometime after 2017. The CBO predicted that

most of those leaving the workforce would be low-wage earners; and that the reduction in hours

worked would be mostly from subsidies given for health insurance purchased through the ACA-

mandated insurance exchanges, Medicaid expansion, penalties on employers who declined to offer

their employees insurance, and newly imposed taxes.

8 The impact of Medicaid enrollment is likely compounded as many enrollees receive other government benefits. Data

from the U.S. Census Bureau find that Medicaid enrollment is also tied with enrollment in other government programs.

Almost all TANF recipients are also enrolled in Medicaid, 86.4 percent of food stamp recipients are enrolled in

Medicaid, and 96.4 percent of recipients of Supplemental Security Income (SSI) are also enrolled in Medicaid. For

those that receive Medicaid, seven percent participate in TANF, about a third are enrolled in SNAP and a third are

receiving SSI. Since other programs can be means-tested, the implicit tax on benefit enrollees is higher than Medicaid

alone.

Kanin L. Reese, An Analysis of the Characteristics of Multiple Program Participation Using the Survey of Income

and Program Participation (SIPP), U.S. Department of Commerce, U.S. Census Bureau, June 2006. 9 See, e.g., Bruce D. Meyer and Dan T. Rosenbaum, “Making Single Mothers Work: Recent Tax and Welfare

Policy and its Effects,” National Tax Journal, Volume 53, No. 4, Part 2: The Earned Income Tax Credit (December

2000) p. 1027-1061; Barbara A. Butrica, Richard W. Johnson, Karen E. Smith, and C. Eugene Steuerle, “The Implicit

Tax on Work at Older Ages,” National Tax Journal, Volume 59, No. 2 (June 2006), p. 211-234. 10 Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2010. 11 Congressional Budget Office, The Budget and Economic Outlook: 2014 To 2024, Labor Market Effects of the

Affordable Care Act: Updated Estimate; Appendix C, February 2014.

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Economic studies have demonstrated how changes to health insurance markets can, in turn, affect

the nation’s broader labor market. Mulligan and Gallen (2013) utilized a multi-sector trade model

to study how the ACA changes would affect labor through an increase in the implicit tax. They

found a three percent decline in hours of work, due primarily to lower-wage workers changing

their behavior.12

Individual state analyses have shown somewhat mixed results. Garthwaite, et al. (2014) used a

natural experiment of large disenrollment from Medicaid in Tennessee (TennCare) to estimate the

labor supply impact of Medicaid. They found that for childless adults in their working years with

a strong preference for health insurance, a lack of public health options greatly increased their

propensity to work. They also estimated that the Medicaid expansion of the ACA would result in

a decrease in the employment rate between 0.3 and 0.6 percentage points.13 Dague, et al. (2017)

recently examined a policy change in Wisconsin that expanded Medicaid to non-elderly, non-

disabled adults without dependent children. They found that enrollment in public insurance

lowered the employment rate by 5.2 percentage points for these childless adults. 14 A study

comparing counties in neighboring states in which one state expanded Medicaid and the other had

not, found that Medicaid reduced employment by 1.3 percent after expansion, with the effects

dissipating over time.15 Research examining the Oregon Health Insurance Experiment, by contrast,

found insignificant results in terms of Medicaid expansion’s impact on recipients’ employment

rate.16

The literature on Temporary Assistance for Needy Families (TANF) shows similar patterns of

reduced work effort due to disincentives from transfer benefits, but increased labor supply when

work requirements were instituted.17 Research on the Earned Income Tax Credits (EITC) also

shows a decrease in labor supply in terms of average hours worked, but an increase in the

propensity to be employed. Among families that receive the benefit, spouses of the head of the

household reduce their work amount (and therefore labor supply) because doing so leads to a

higher benefit for the family due to how the benefit is determined for married couples.18 The EITC,

12 Casey Mulligan and Trevor Gallen, Wedges, Wages, and Productivity under the Affordable Care Act, working

paper, National Bureau of Economic Research, December, 2013. 13 Craig Garthwaite, Tal Gross, and Matthew J. Notowidigdo, “Public Health Insurance, Labor Supply, and

Employment Lock,” The Quarterly Journal of Economics, Volume 129, Issue 2 (May 2014) p. 653-696. 14 Laura Dague, Thomas DeLeire, and Lindsey Leininger, “The Effect of Public Insurance Coverage for Childless

Adults on Labor Supply,” American Economic Journal: Economic Policy, Volume 9, No. 2 (May 2017) p. 124-154. 15 Lizhong Peng, Xiahui Guo, and Chad D. Meyerhoefer, The Effects of Medicaid Expansion on Labor Market

Outcomes: Evidence from Border Counties, working paper, National Bureau of Economic Research, September

2018. 16 Katherine Baicker, Amy Finkelstein, Jae Song, and Sarah Taubman, “The Impact of Medicaid on Labor Market

Activity and Program Participation: Evidence from the Oregon Health Insurance Experiment,” American

Economic Review, Volume 104, No. 5 (May 2014) p. 322-328. 17Marianne P. Bitler, Jonah B. Gelbach, and Hilary W. Hoynes, “What Mean Impacts Miss: Distributional Effects

of Welfare Reform Experiments,” American Economic Review, Volume 96, No. 4 (September 2006) p. 988-1012.

Robert A. Moffitt, “Welfare Programs and Labor Supply,” Handbook of Public Economics, Volume 4 ed. by A.J.

Auerbach and M. Feldstein (2002) p. 2393-2430.

Bruce Meyer and Dan T. Rosenbaum, “Welfare, the Earned Income Tax Credit, and the Labor Supply of Single

Mothers,” The Quarterly Journal of Economics, Volume 116, Issue 3 (August 2001) p. 1063-1114. 18 Nada Eissa and Hilary W. Hoynes, “Taxes and the Labor Market Participation of Married Couples: The

Earned Income Tax Credit,” Journal of Public Economics, Volume 88, No. 9-10 (August 2004) p. 1931-1958.

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however, increased the total household income and brought new workers into the labor force

because qualifying for the EITC requires an earned income.19

Other studies have claimed that the ACA’s expansion of Medicaid causes the labor supply to

remain neutral or slightly increase. The Kaiser Family Foundation reviewed multiple studies,

claiming to find varying and potentially positive effects of the Medicaid expansion on certain labor

supply outcomes.20 Many of these reviewed studies, however, provide an incomplete picture of

the effect of the Medicaid expansion.

The Council of Economic Advisers (CEA) has detailed some of the possible effects that work

requirements could have on non-cash programs, including Medicaid. The CEA report suggests that

imposing work requirements on Medicaid recipients would increase the country’s adult labor

supply. 21 They caution, however, that such requirements must be carefully implemented and

executed in order to be effective.

Medicaid: Diminishing Work Experience and Earnings

Education, training, and good health are typical examples of human capital that people attain to

increase their lifetime earnings and thus increase consumption. As with physical capital, a larger

stock of human capital will lead to faster economic growth for the individual and economy as a

whole. The 20th century has been called the “human capital century” because educational

attainment increased dramatically in the United States and elsewhere, which translated into higher

skills and substantial economic growth for more educated societies.22 Extending Medicaid benefits

to able-bodied, working-age individuals, however, may reduce investments in human capital by

removing an incentive to work or work more hours, thus lowering long-term earnings and

adversely affecting their lifetime consumption patterns. For example, although Medicaid provides

little- or no-cost health care coverage, that coverage disappears when a worker reaches a threshold

income, which means that a Medicaid recipient who otherwise may want to work more hours per

week in order to secure a raise or promotion, may choose not to work if doing so would threaten

his or her Medicaid benefits. In such circumstances, the Medicaid recipient may feel compelled to

sacrifice long-term earnings growth and lifetime consumption in order to not risk losing Medicaid

benefits. The disincentive to work, as observed in the literature,23 lowers available resources for

the individual to maintain their level of consumption over their lifetime.24

19 Here the substitution effect is dominating the income effect, causing the employment rate to increase. 20 Antonisse, Larisa, Rachel Garfield, Robin Rudowitz, and Samantha Artiga. “The Effects of Medicaid Expansion

under the ACA: Updated Findings from a Literature Review,” The Kaiser Family Foundation, May 16, 2018. 21 The Council of Economic Advisers, Expanding Work Requirements in Non-Cash Welfare Programs, July 2018. 22 Claudia Goldin, “The Human-Capital Century and American Leadership: Virtues of the Past,” Journal of

Economic History, Volume 61, Issue 2 (June 2001) p. 263-292. 23Laura Dague, Thomas DeLeire, and Lindsey Leininger, “The Effect of Public Insurance Coverage for Childless

Adults on Labor Supply,” American Economic Journal: Economic Policy, Volume 9, No. 2 (May 2017) p. 124-154.

Casey Mulligan and Trevor Gallen, Wedges, Wages, and Productivity under the Affordable Care Act, working

paper, National Bureau of Economic Research, December, 2013. 24 According to the permanent income hypothesis, individuals and households make economic decisions based on

their expected earnings over the course of their lifetime. To maintain Medicaid eligibility, the ACA expansion group

would be forced to work less and thus reduce lifetime earnings and lower their level of consumption.

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Time and experience in the workforce affect wages, even among recipients of government aid.

Studies have shown that more work experience translates into higher wages over time.25 Loeb and

Corcoran (2001), for example, compared the effect of work experience on wage growth for

recipients and non-recipients of the Aid to Families with Dependent Children (AFDC) program

(abolished in 1996 and replaced with TANF). Although they found that the wage growth associated

with more experience was higher for non-recipients than recipients, they showed positive and large

returns to experience for both groups. They found that years spent not working had a negative

effect on earnings and earnings growth. AFDC recipients had inconsistent labor force participation

prior to TANF reform, and their lifetime earnings were estimated to be much lower than those of

non-recipients. Loeb and Corcoran’s study of earnings and wage growth among AFDC recipients

stressed the importance of continuous, uninterrupted work histories on wage growth, and advised

using work incentives to balance out the disincentives inherent in such programs. Similarly, insofar

as Medicaid is a means-tested program with no direct incentives to work, we demonstrate here that

Medicaid recipients also may suffer from inconsistent work patterns that will negatively affect

their lifetime earnings.

Time spent out of the work force not only negatively affects earnings directly, due to depreciation

of human capital, but also can convey a negative economic “signal” to potential employers and

thus limit the possibility for future employment. Spence (1973) characterized a potential

employer’s decision to hire a new worker as an investment under uncertainty.26 The employer does

not know how productive an employee will be in advance. Thus, it is important for job applicants

to invest in “signals” that employers value, such as education, work experience, and a

demonstrated capacity to remain employed and “on the job.” Given two job applicants who differ

only in workforce attachment, an employer may interpret an applicant’s employment gaps as a

sign that he or she is less likely to stay at the company long-term. The longer it takes an employee

to find a new job, the more his or her stock of human capital will depreciate, further undermining

long-term wage growth potential. Medicaid recipients who take time out of the labor force may

send a negative signal to potential employers that further reduce their lifetime earnings. Therefore,

encouraging labor force attachment through a work requirement—and thus preventing

depreciation of human capital—can send a positive signal to employers. This could lead to better

employment opportunities with higher potential wages for Medicaid recipients.

Medicaid’s income-eligibility requirement negatively affects labor force participation by creating

a disincentive for Medicaid recipients to maintain meaningful employment. Data and theory show

that this disincentive, in turn, reduces human capital in the long-term as Medicaid recipients drop

out of or never join the labor force. The analysis in the next section quantifies this loss of human

capital.

25 Susanna Loeb and Mary Corcoran, “Welfare, Work Experience, and Economic Self-Sufficiency,” Journal of

Policy Analysis and Management, Volume 20, No. 1 (Winter 2001) p. 1-20. 26 Michael Spence, “Job Market Signaling,” The Quarterly Journal of Economics, Volume 87, No. 3 (August 1973)

p. 355-374.

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Analyzing the Benefits of Work Requirements: Methods and Results

Imposing a work requirement on Medicaid eligibility may change the work behaviors of single,

able-bodied adults with no children. Using publicly available data, we develop an empirical

framework for estimating the effect of Medicaid work requirements on the lifetime income gains

of Medicaid recipients who change their behavior to satisfy those requirements.

Data for Analyzing Work Behaviors and Earnings

We use publicly-available, individual-level data to analyze the effect of a work requirement for

Medicaid eligibility. This data come from the American Community Survey (ACS) from 2008 to

2016. The ACS is an annual survey conducted by the U.S. Census Bureau to gather information

on the United States population at the individual level. The survey includes information on

demographics, educational attainment, work-related outcomes and choice, migration information,

and disability-related data. The ACS information on wage income and work decisions are used to

study what effect a work requirement could have on single, able-bodied adults with no dependent

children. We partition the data in order to focus on individuals affected by the ACA’s Medicaid

expansion (single, able-bodied adults with no child dependents) and who report having Medicaid

coverage.27 Individuals in the military or enrolled in school are excluded. The analysis that follows

includes only individuals in their working years, ages 18 to 65.28

Approach to Evaluating the Effect of Work Requirements

Eligibility work requirements will be binding for those who will need to change their behavior to

fulfill the requirements. Table 1 presents the states that have adopted the Medicaid expansion and

have applied for the Section 1115 demonstration waivers to implement work requirements.

27 The sample is limited to those who are only covered on Medicaid. There are individuals who report Medicaid

coverage along with an additional form of health coverage, e.g. private insurance. Since individuals with other types

of coverage as well as Medicaid will be able to rely on the alternative coverage even if they are not fulfilling work

requirements, this analysis is limited to only those reported to have Medicaid insurance. 28 Although the Social Security full retirement age is increasing to age 67, the analysis is focused on a period of time

when individuals who are age 65 can still claim full retirement benefits from Social Security.

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States that have introduced Medicaid work requirements typically require eligible individuals to

work approximately 20 hours per week.29 Some exemptions are granted to those who are disabled

or unable to work due to medical conditions, those who are responsible for dependents (both

children and elderly or disabled individuals), and pregnant women. Although many Medicaid

recipients may already be working enough to maintain Medicaid eligibility, others are not and will

need to modify their behavior.

We estimate the effect of imposing work requirements on individuals who would need to change

their behavior to satisfy those requirements and maintain Medicaid eligibility, by comparing

individuals who must increase their working hours to meet the requirements (treatment group) to

those individuals already working enough to maintain eligibility (control group). We study those

already receiving Medicaid who became eligible as a result of the ACA’s Medicaid expansion and

would need to satisfy the work requirement, i.e., single, able-bodied adults with no dependents.

The estimated effect assumes that the treatment group changes their behavior to match that of the

control group. We assume that all enrollees would satisfy the work requirement.30

The outcomes of interest include the decision to work, hours worked (conditional on working),

and lifetime earnings. Two descriptive empirical frameworks demonstrate the work requirement’s

effect. The first explains the difference in outcomes across all ages between those who already

satisfy the requirement and those who would need to modify their behavior in order to satisfy it.

The first empirical framework takes the following form:

𝑌𝑖 = 𝛽𝑇𝑖 + 𝑋𝑖′𝛽𝑋 + 𝜈𝑖

29 In some states, the requirement can be satisfied with activities outside of strictly working, such as job searching,

training programs, and education. The analysis assumes that the requirement is satisfied strictly through increased

work activity and not through some of these alternative activities. 30 This analysis does not estimate the effect of potential Medicaid dropouts as a result of work requirements. This is a

topic meant for further research.

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where the treatment 𝑇 for individual 𝑖 is equal to one if the individual needs to modify their

behavior in order to maintain eligibility for Medicaid and zero if the individual already meets the

work requirements. This model is used for analyzing how average hours worked per week and

employment rates would change if the work requirement is implemented. The effect is estimated

separately for males and females.

The second framework helps estimate the difference for each age between the two groups to

generate the effect of work requirements on lifecycle earnings. First, the earnings profiles for each

group, controlling for normal factors, are estimated. The difference between the two profiles is

assumed to be the effect of implementing the work requirements. This second model takes the

following form:

𝑌𝑖 = 𝛼1𝑎𝑔𝑒𝑖 + 𝛼2𝑎𝑔𝑒𝑖2 + 𝛼3𝑎𝑔𝑒𝑖

3 + 𝛼4𝑎𝑔𝑒𝑖4 + 𝑋𝑖

′𝛼𝑋 + 𝜇𝑖 if 𝑇 = 𝑇𝑖

where the outcome is log real (2009 dollars) wage income,31 and the profile of the lifecycle

earnings is quantified using 𝛼1 through 𝛼4 and the age quartic. Here, the interpretation of the 𝛼1

through 𝛼4 terms is the change in earnings as result of experience. Age is used as a proxy for

experience. Since individuals in the treatment group are less likely to accumulate earnings as

quickly as those in the control group, the profiles are run separately for each group to capture the

differences in earnings growth over the individual’s lifetime. The difference between the two

profiles represents the effect of the work requirement. Using ACS data, the controls in 𝑋, for both

regression analyses, include an age quartic, race, race and age interactions, education indicators,

year fixed effects, and state fixed effects. Similar to the first model, the profiles are estimated

separately for men and women.

Some individuals will be exempt from the work requirement even if they work less than the

mandatory hours of work needed to maintain eligibility because of certain exemption conditions,

e.g., a pregnant woman or an individual that needs to care for dependents. Therefore, the sample

is defined to estimate the effect of the work requirement by only analyzing those who are on

Medicaid, single, able-bodied, and with no child dependents younger than the age of 18.

Findings: The Effect of Work Requirements

Table 2 shows the potential effect of the work requirement on the extensive margin to work and

hours worked, conditioned already on working, where the effect is averaged over all ages. As the

treatment group works less than 20 hours per week, the interpretation of the effect of work

requirements on the decision to work for those in the treatment group would be full employment

of that group to maintain eligibility. The estimated effect is the proportion of the group who would

become employed to reach full employment.

31 Comparing dollar figures across time is difficult due to inflation. In order to compare wage income over time, the

Consumer Price Index, maintained by the Bureau of Labor Statistics and a common source for inflation from year-to-

year, was used to set all wage income into real dollars from the same year, 2009. This ensured that the analysis was

not affected by potential shifts in inflation from one year to another and could capture the effect of the age quartic on

wage income for each group.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Of those who would not be able to find work, there are certain exemptions in most work

requirements that still grant Medicaid eligibility despite not working.32 Similar exemptions exist

in other federal benefit programs such as SNAP. But individuals who are not exempt must be

engaged in an activity geared towards finding employment, e.g. education, training, or job

searching. Therefore, a policy that encourages individuals to work at least 20 hours per week will

tend to induce their full employment over time.

For those already working, the number of hours worked would also be expected to increase. We

find that if women on Medicaid working less than 20 hours per week changed their behavior to

match that of women who already satisfy the work requirement, they would increase their hours

worked per week by 22.1 hours. Similarly, comparable men would increase their weekly hours

worked by 25.4. This may appear to slightly overstate the increase in hours worked since

individuals on average would only need to increase their work time to 20 hours per week. As

individuals increase their work hours, however, they gain human capital through experience, which

can lead to higher wages and increased labor supply. Therefore, we assume that the overall effect

of work requirements would draw workers above 20 hours per week over time, which implies that

the results are consistent with the theory.

The work requirement’s effect on lifetime earnings stems from two sources: 1) an increase in hours

worked; and 2) an increase in the hourly wage. With more experience through increased labor

supply, individuals would see their hourly wage rise as well. Therefore, the effect on lifetime

income would be more than just the proportional increase in hours worked. The effect is measured

through the difference in lifecycle earnings for the two groups, controlling for normal factors.

Graphs 2a and 2b present the two wage profiles of the treatment and control groups from the

32 A partial list of exemptions includes full time students, pregnant mothers, disability and primary caretakers of a

dependent.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

empirical analyses for men and women, separately. Holding all else equal, the coefficients on the

age quartic generate the profiles.

According to the framework, the work requirement leads to much higher real lifetime earnings.

The lifetime, real, undiscounted difference in earnings is $212,694 for women with Medicaid

coverage, and $323,539 for men with Medicaid coverage.33 Assuming the work requirement shifts

the behavior of the treatment group to match that of the control group, these effects represent the

lifetime effect of work requirements on earnings for an individual in the sample who maintains

Medicaid throughout their working life. This effect is the sum of the difference in earnings across

working years for those in the sample, but likely understates the value of a work requirement for

the average person because theory suggests that as individuals work more their wages increase

with their experience, increasing their work up to fulltime work.

33 For robustness, limiting the sample to those with Medicaid coverage and another type of coverage, the lifetime

earnings for women falls to $121,327 and rises to $365,658 for men.

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The relatively flat growth in earnings for the control group implies that the group is not retaining

enough human capital to experience substantial wage growth or is penalized for being out of the

labor force for extended periods. The difference in the two profiles captures increased hours

worked and experience. Illustrating the gains in lifetime earnings due to work requirements for a

given age, Tables 3a and 3b present the lifetime earnings increase for an individual at a given age

in the treatment group due to the work requirements.34 For example, a 30-year-old male who must

change his behavior to maintain Medicaid eligibility due to work requirements is estimated to

experience a lifetime increase in real earnings of $237,114.

34 This table is constructed by shifting the profile of the control group to start at the given age of an individual in the

treatment group and taking the difference in earnings at each age up to age 65 of the treatment group. That is, for a

30-year-old male in the treatment group, their earnings would be expected to increase to that of an 18-year-old in the

control group in the first year of the work requirement. Then when they are age 31, the increase in earnings is

represented by the difference between a 19-year-old in the control group and their expected 31-year-old earnings if

they would not need to satisfy a work requirement. The estimated effect at each age continues up to when the individual

in the treatment group would be age 65, compared to the earnings of an individual in the control group at age 53. The

lifetime earnings gains are then represented by the sum of the differences across those ages and profiles. The increases

in the impact on earnings at age 55 and beyond are a result of the horizontal shift in the profile for those already

working enough to satisfy the work requirement. The shift in the profile for the control group starts at age 25 for those

55 and older as it is assumed those near the end of their prime-age working years would be similar to those at the start

of their prime-age working years in terms of experience and human capital.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

The estimate contains another potential bias because it assumes that individuals in both the

treatment group and control group stay on Medicaid their entire working lives. An individual’s

duration on Medicaid varies greatly, however, and may not be consistent over an extended

period.35 If individuals working less than 20 hours per week were more likely to exit Medicaid due

to earning more in wage income than those who work more than 20 hours per week, the estimates

would be an overstatement. But if those who are already working at least part-time hours are more

likely to leave Medicaid (because they earn too much income) than their less than 20-hour

workweek counterparts, the estimates may be biased downward.

35 Mark C. Berg and Dan A. Black, “The Duration of Medicaid Spells: An Analysis Using Flow and Stock

Samples,” The Review of Economics and Statistics, Volume 80, Issue 4 (November 1998) p. 667-675.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Exploring data from the 2014 Wave 2 of the Survey of Income and Program Participation (SIPP)36

reveals that, regardless of working more or less than 20 hours per week, single, working-age

individuals with no child dependents tend to stay on Medicaid for at least one year. If there was

more available data tracking individual work activities and Medicaid receipt in Medicaid

expansion states over time, we could refine the analysis and study the income dynamics of

Medicaid recipients. Such data are not yet available.

As an alternative analysis, another empirical framework compares the treatment group of

individuals only on Medicaid to individuals working more than 20 hours per week, regardless of

Medicaid coverage. The control group is expanded to explore the potential lifetime gains of

earnings to individuals who work their way off of Medicaid due to the work requirement and

follow a career path similar to those not on Medicaid. The method to estimate the profile for this

new control group is similar to that described above. The difference between the two earnings

profiles represents the total effect of the work requirement, transitioning individuals with higher

earnings off of Medicaid. The results are presented in Graphs 3a and 3b.

36 SIPP is maintained by the U.S. Census Bureau and contains information on participation in public welfare programs

over time.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Under this scenario, the work requirement has the potential to increase men’s lifetime real wage

income by $967,770, and $725,743 for women.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Conclusion

Implementing work requirements for benefits eligibility creates an incentive for individuals to

increase human capital investment through the labor market. With understandable exceptions for

some unable to meet those requirements, we find that work requirements on able-bodied adults

with no dependents may lead to significant potential economic benefits for these individuals.

Adopting a work requirement for Medicaid eligibility can move able-bodied adults without

dependents toward the goal of full employment. Some individuals may opt not to work or be unable

to find work, but reasonable exemptions, such as attending school or pursuing career training, will

allow otherwise ineligible individuals to maintain Medicaid eligibility without working. Such

“community engagement” activities build human capital and increase the likelihood of future

employment as well as lifetime earnings, keeping these individuals on track for full employment.

We find that implementing Medicaid work requirements has the potential to raise the usual weekly

hours worked between 22 and 25 hours (more than half a full-time work week), well above the

typical 20 hours per week requirement. As individuals work more, they gain experience and that

experience translates into higher wages and even more hours worked, leading up to full-time

employment. With single, able-bodied individuals with no dependents on Medicaid averaging

approximately 11 hours of work per week, the 22- to 25-hour increase in work hours confirms that

individuals would tend towards full-time work if required to work at least 20 hours per week.

Moreover, the overall effect of work requirements on lifetime earnings can be quite substantial.

An individual on Medicaid who increases their work experience and skill development can

potentially earn a million dollars more over their lifetime.

The results of our analysis must be caveated. The income profiles, like all similar profiles, do not

show or predict how any given individual’s income may change over the course of their life. They

indicate the average values for income for each age, holding a number of individual characteristics

constant. Here, these are average incomes at each age, holding Medicaid status, disability status,

marital status, parental status, and employment status constant. For most people, none of these

characteristics are constant across their lifetimes. Put another way, the typical individual on

Medicaid at age 20 does not necessarily become the typical individual on Medicaid at age 50. This

means that a precise interpretation of the lifetime income gains from work requirements described

would be the cumulative of average gains across ages among those currently on Medicaid who

are targeted by work requirements.

Holding Medicaid status constant for the sample is an assumption. As the group of single, able-

bodied adults is new to Medicaid eligibility, little is known about how often this group transitions

on and off of Medicaid, especially conditional on how much they may or not may not be working.

According to a Census Bureau analysis of SIPP data for 2009-2012, 35.6 percent of all participants

stay on Medicaid for less than a year, and 35.3 percent stay on it for more than three years (Irving

& Loveless, 2015).37 More recent SIPP data (Wave 2 of the 2014 SIPP) suggest that the group

effected most by Medicaid work requirements (primarily those childless, working-age adults who

are not disabled and part of the Medicaid expansion group) stay enrolled in Medicaid for at least a

37 Shelley K. Irving and Tracy A. Loveless, Dynamics of Economic Well-Being: Participation in Government

Programs, 2009-2012: Who Gets Assistance?, Household Economic Studies, U.S. Census Bureau, May 28, 2015.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

year at a higher rate, but the sample size for this subgroup is too small to conduct complex analysis

at this time.

This paper can be a basis for further study of the Medicaid expansion group and work-related

outcomes. The lifetime profile of earnings by individuals on Medicaid assumes Medicaid

enrollment for the entire life of the individual and that, in the absence of work requirements,

individuals who work less than 20 hours per week will continue to do so for the remainder of their

lives. In reality, people improve their earnings enough to leave Medicaid, increase their hours

worked on their own, or just enroll in Medicaid while between jobs only to dis-enroll when they

find work. Data that allow for tracking and comparing individuals on Medicaid across time would

permit a more refined duration analysis. With such data, an ideal analysis could examine how work

requirements affect the duration of time that people spend enrolled in Medicaid, the duration of

time people on Medicaid spend looking for work, and from that, calculate changes to lifetime

earnings with more precision.

Implementing work requirements will not be without its political and administrative difficulties.

But some foreseeable difficulties, such as the unplanned program dropouts and the increased costs

of authenticating new eligibility requirements, can be managed with some relatively simple steps.

State and federal Medicaid departments will need to plan ahead and train their case workers

adequately in order to ensure effective communication about and administration of the new policy.

Medicaid departments should also conduct an information campaign to educate current Medicaid

recipients regarding the changes to eligibility requirements, how they will be affected, and what

new steps may be required for maintaining eligibility.

Linking recipients to work programs, apprenticeships, training programs, and recruiting and

employment agencies will help ensure that eligible recipients fulfill the requirement and avoid

unnecessary lapses in Medicaid coverage. And policymakers could require all employers to report

employee hours to their state Medicaid agencies, lowering the compliance cost for individual

recipients at a minimal cost to employers.

These suggested remedies may help ensure that all eligible individuals maintain Medicaid

coverage, minimize program disenrollment due to inadvertent non-compliance, and expand

opportunities for Medicaid recipients to increase their earnings and live independent of Medicaid.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

About the Authors

Rea S. Hederman Jr. is the executive director of the Economic

Research Center and vice president of policy at The Buckeye

Institute. In this role, Hederman oversees Buckeye’s research

and policy output. A nationally recognized expert in healthcare

policy and tax policy, Hederman has published numerous

reports and papers looking at returning health care power to the

states, the impact of policy changes on a state’s economy, labor

markets, and how to reform tax systems to spur economic

growth.

Prior to joining Buckeye, Hederman was director, and a

founding member of the Center for Data Analysis (CDA) at the

Heritage Foundation, where he served as the organization’s top

“number cruncher.” Under Hederman’s leadership, the CDA

provided state-of-the-art economic modeling, database

products, and original studies.

While at Heritage, Hederman oversaw technical research on

taxes, health care, income and poverty, entitlements, energy,

education, and employment, among other policy and economic

issues, and he was responsible for managing the foundation’s

legislative statistical analysis and econometric modeling.

In 2014, Hederman was admitted into the prestigious Cosmos

Club as a recognition of his scholarship. He graduated from

Georgetown Public Policy Institute with a Master of Public

Policy degree and holds a Bachelor of Arts degree in history and

foreign affairs from the University of Virginia.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Andrew J. Kidd, Ph.D. is an economist with the Economic

Research Center at The Buckeye Institute. In this position, Kidd

conducts and produces original economic research that looks at

and analyzes the impact of state and federal policies on peoples’

lives and on the economy.

Prior to joining The Buckeye Institute, Kidd worked in

litigation consulting, providing expert testimony related to

economic damages in legal cases. Kidd also served as a research

assistant at the UW Population Health Institute at the University

of Wisconsin-Madison, which, through its health policy group,

performs research and analysis projects on health care access,

cost, financing, health system performance, and quality. During

his time at the University of Wisconsin-Madison, Kidd’s

research focus was in demography, education, labor outcomes,

and the effects of public policy on labor, education, and health

outcomes. He was a College of Letters and Science teaching

fellow and was awarded the Anna Morris Ely Teaching Award

from the Department of Economics. While there, he taught

classes in wages and the labor market, analytical public finance,

the principles of microeconomics, and the principles of

macroeconomics.

Kidd continues to study questions regarding labor markets and

the effects of public policy and demographics on labor market

outcomes and behaviors, as well as evaluating health care

policy and education policy. A native of Lima, Ohio, Kidd

received his bachelor’s degree in economics and mathematics

from the University of Notre Dame before completing his

master’s degree and his doctorate in economics from

the University of Wisconsin-Madison.

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THE ECONOMIC RESEARCH CENTER AT THE BUCKEYE INSTITUTE

Tyler Shankel

Tyler Shankel is an economic policy analyst with The Buckeye Institute’s Economic Research

Center. In this role, he analyzes the economic impacts of government policies on government

budgets and taxpayers.

Prior to joining Buckeye’s Economic Research Center, Shankel was a research contractor at

the Institute for Humane Studies at George Mason University. In that role, he reviewed the works

of scholars from around the world and provided recommendations on how to best work with them

to forward the organization’s mission.

Shankel attended the University of Colorado Boulder’s economics doctorate program before

returning to Columbus. While at the University of Colorado, he worked on a project that examined

the causal factors relating to internal migration patterns within Canada, to be compared with their

effects on new immigrants settling throughout Canada.

Shankel earned his bachelor’s degree in economics and a minor in Persian from The Ohio State

University. There, he worked on a comprehensive policy analysis project examining land tenure

reform on Indian reservations, and other policy issues relating to economic development in Native

American communities.

James B. Woodward, Ph.D.

James B. Woodward, Ph.D. is an economic research analyst with the Economic Research Center at

The Buckeye Institute. In this position he collects economic data, performs research, and writes

about economic policy issues.

Prior to joining The Buckeye Institute, Woodward earned his Master of Public Policy and a Ph.D.

in public policy from the University of Kentucky. During his time there, Woodward worked for

the commonwealth’s Hazard Mitigation Grant program, helping to verify the quality of regional

emergency preparedness plans. He also performed policy-related research for the Commonwealth

Council on Developmental Disabilities, contributing to a paper on possible, new treatment options

for those with disabilities.

Woodward has also spent time researching public economics, health economics, and occupational

licensing. His dissertation, American Obesity: Rooted in Uncertainty, Institutions, and Public

Policy, looked at the role bad public policy (as opposed to consumers and/or market forces) may

have played in the rapid increase in obesity rates.

Healthy and Working: Benefits of Work Requirements for Medicaid Recipients Copyright © 2018 The Buckeye Institute. All rights reserved. Portions of this work may be reproduced and/or translated for non-commercial purposes provided The Buckeye Institute is acknowledged as the source of the material.

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